HOUSTON – (Realty News Report) – The latest episode of The Ralph Bivins Project features Wade Bowlin, managing director in Houston for Avison Young, a global commercial real estate firm.
RALPH BIVINS: We’re here with Wade Bowlin, head of the Houston office of Avison Young office, an international commercial real estate firm. Wade is a knowledgeable source in the Houston office market, working for years with PM Real Estate Group, and Madison Marquette.
Wade, the office vacancy rate in Houston is reportedly at an all-time high. How to you describe the current state of affairs in Houston?
WADE BOWLIN: You’re right, we are at an all-time high for vacancies. It’s kind of an interesting statistic. If you look at the leasing volume, we are not that far off from the way we’ve been historically. The issue is that we have a lot of volume. The volume of the deals over the past few years, particularly since the pandemic, have mainly involved a reduction of space. You might have lease deal, but it’s a company reducing its space from, say, a million SF to 500,000 SF. That’s quite a reduction in office space that a company is taking. Until we can get out of that situation, it’s going to be difficult. There are signs that things may be changing. There have been a couple of deals completed – and we just did a deal — that involved an expansion. It’s a good sign. Hopefully, we are at the bottom and are turning the corner. But until we see deals with actual expansion, we will be in for some tougher times.
RALPH BIVINS: Is there a way to take office buildings that may be obsolete and find different ways to use them?
WADE BOWLIN: We have about 290 million SF of office product in the Houston metroplex. 11 million is Class C. And 87 million is Class B, and about half of that is – as you said – obsolete. It’s a crazy statistic. Houston has been flat on office absorption. The difference is that we have absorbed 1.2 million SF of Class A office space. Between Class B and Class C, there is a negative 1.2 million SF in absorption. Clearly, there are buildings that will never be leased as office buildings.
And you’re beginning to see future owners looking at non-traditional ways to monetize those assets. What they will do is yet to be determined. But I know of one group that bought a complex up north adjacent to a large water supply. The reason they bought it was for bitcoin mining. They estimate that the mining of bitcoins will be 30 percent more than traditional water source. So, you’re seeing things like that.
RALPH BIVINS: I still don’t really understand what bitcoin mining is.
WADE BOWLIN: I don’t know the answer either. But this is one of the things that may be happening with excess office space. Another is the creation of grow farms. Put up some UV lights inside an office building and light them for 24 hours. People who use this will claim that the crops they grow are twice as good as the ones that get 12 hours of natural sunlight.
We are starting to see all kinds of different sources. It will be interesting to see how far this goes. One of the things we’ve seen lately is secure and classified document storage.
RALPH BIVINS: And residential use?
WADE BOWLIN: That’s the one grabbing the headlines – conversion from office to multifamily. There are three or four notable projects in discussion now. Obviously, Esperson is converting a big portion of that downtown building into multifamily, or RESI. There are rumblings about 800 Bell, which you wrote an article about, since it has changed ownership. Then, there is 5555 San Felipe with a conversion there. We are intimately involved with that project because we manage that building. They have spent a lot of time and effort to make that conversion work.
The biggest hurdle to making a multifamily conversion work right now is the fact that the rental rates don’t support the conversion. But it might make sense to get something going now. We estimate that they will be able to do that. And even if the rental rate isn’t there yet, it’s probably better to get the conversion under way rather than leaving the office building as it is. 5555 San Felipe is a great office building. It would lease up. However, it’s the conversion of that market from larger tenants to mid-size tenants that could require a lot of time to lease up.
RALPH BIVINS: That’s the former Marathon Oil building. They have built another building near City Centre on the Katy Freeway.
Also, aren’t there still office tenants in 5555 San Felipe?
WADE BOWLIN: Yes, 5555 is not vacant. There are still tenants with three to three and a half years left on their leases. They’ll be evaluating whether to renew the leases or to bifurcate the structure into a split use. All these are in the planning stages and will have to be worked out over time.
800 Bell is a bit different because it is completely vacant. That’s the old Exxon Mobil headquarters for Houston.
RALPH BIVINS: That’s a big building, 1.2 million SF, 45 stories. That’s a big piece of vacancy; it’s been vacant about eight years now. Making something happen there that’s positive is a good thing.
WADE BOWLIN: What’s interesting about it is the fact that the Petroleum Club occupied the top two stories. And everything that was there then is still there. I was in there a couple of weeks ago and it was definitely very interesting.
Wade Bowlin’s biography
Wade Bowlin is managing director in Houston for Avison Young, a global commercial real estate firm. He is a specialist in leasing office space. He has more than 30 years of experience in real estate — the last 25 years focused on the Houston market. He has been responsible for the lease negotiation of significant market transactions of more than 100,000 SF firms. Throughout his career, he has averaged more than 60 lease transactions per year. Bowlin was previously president of Property Services Central Division of Madison Marquette and president of the central division at PM. He is a graduate of Texas Tech University.
Feb. 23, 2023 Realty News Report Copyright 2023
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